Bankers have been hired to advise Whitehall on airport expansion ahead of a crucial decision on a new runway.
The Department for Transport (DfT) has appointed Rothschild to help evaluate Gatwick and Heathrow’s rival expansion proposals, either of which would rank among Britain’s biggest-ever infrastructure projects.
Sources said on Thursday that Rothschild would provide advice to ministers and officials in the wake of the publication of the final report of The Airports Commission, which is expected during the summer.
Sir Howard Davies, the Commission’s chairman, will recommend the provision of a new runway at either Gatwick or Heathrow, and Labour and the Conservatives have been urged by business lobbying groups to make a swift decision about implementation.
The timing of Rothschild’s appointment is understood to have pre-dated Whitehall going into ‘purdah’ ahead of next month’s General Election.
A DfT spokeswoman said
As part of the Department’s preparation for receiving the Airports Commission’s final report, Rothschild was appointed to provide financial advice to assist our understanding of the deliverability of any new runway capacity
In recent months, Gatwick and Heathrow have intensified their battle to win public support for their respective expansion proposals, spending millions of pounds on advertising and public relations campaigns.
The two airports’ owners’ proposals have been shortlisted by the Commission, alongside a separate proposal from a private consortium called Heathrow Hub, which wants to extend the northern runway and then divide it into two in order to expand capacity.
All three options have been assessed by the Airports Commission, with Heathrow Airports Holdings’ standalone third runway plan estimated to cost £18.6bn without factoring in public money for improved road and rail links; Heathrow Hub’s Plan has been costed at £13.5bn; Gatwick’s expansion is projected to require an outlay of £9.3bn.
Heathrow’s expansion is, however, regarded as offering the biggest economic benefits in terms of job creation, while Gatwick argues that the noise impact would be far greater at its rival airport.
In a consultation document published last year, the Airports Commission estimated that HAH could have to raise additional equity of up to approximately £8.4bn and debt of up to roughly £29.9bn.
The commission said
This will put the airport at the highest end of the range of financing for infrastructure projects in the UK and could make Heathrow Airport Ltd of comparable scale to Network Rail (with a long-term debt of circa £35bn) and larger than National Grid (circa £25bn).Raising this level of financing would be challenging; and there are risks associated with any increase of per passenger aeronautical charges to circa £30, significantly higher than current charges across the UK and globally, in a context where Heathrow must compete with other airport operators
The Commission said Gatwick’s proposal could require additional equity of up to £3.7bn and additional debt of up to £14.3 bn.
It said that this level of finance was
Not unprecedented for infrastructure projects and airports” but cautioned that it was significantly larger than the company’s financing to date and may be challenging in a context where there is uncertainty around passenger demand forecasts and where the airport may need to raise its aero charges from £9 per passenger to up to c. £15-18 or more within a competitive environment
Rothschild is a long-standing adviser to the UK Government, having assisted with the privatisation of part of the state’s shareholding in National Air Traffic Services, and advising on the future of Royal Mail under the previous Labour administration.